Note:
Margaret M. (Peggy) Foran, quoted in the article
below, is a member of the Shareholder Forum's Policy Advisory Board
and of the Program Panel
guiding the Forum's establishment of marketplace standards for "Fair
Investor Access."

Boards Cozy Up
to Investors

Once-Resistant
Directors Spend Time With Shareholders to Defend Policies

Corporate boards are
being pulled into a job they have long resisted: investor relations.

More companies are
relying on directors to defend corporate policies or explain their
thinking on touchy issues such as executive pay. Partly as a result,
major shareholders are coming to expect more face time with board
members, with whom they previously had few communications.

"For a long
time, boards felt insulated from shareholders," said
Michelle Edkins, head of the global corporate-governance group at
money manager
BlackRock Inc."They felt it was the job of management to deal with
shareholder concerns. But there's a growing realization that directors
are accountable to shareholders, so [they] need to understand what
shareholders think."

"There's
absolutely more contact between boards and shareholders," said Ed
Knight, general counsel for stock-exchange operator
Nasdaq OMX Group Inc."The say-on-pay development was a catalyst in what has
become a long-term trend, and what will become best practice for
companies."

Say-on-pay rules,
mandated by the 2010 Dodd-Frank financial law, let a company's
shareholders weigh in on executive pay through a nonbinding vote. Data
from proxy-advisory firm Institutional Shareholder Services show that
shareholders are increasingly likely to challenge executive pay
packages they consider too generous or at odds with their own
interests.

In 2012, a majority of
shareholders voted against executive pay packages at 2.2% of the
companies that held say-on-pay votes. That's up from 1.3% in 2011, the
first full year such votes were held.

While
companies aren't obliged to reconsider pay practices if they lose such
a vote or get only weak support, some, including
Citigroup Inc.,
Occidental Petroleum Corp. and
Allstate Corp., have done so. Many companies also have increased
their board's outreach to shareholders.

Corporate-governance
experts say most companies hope for at least 70% support in say-on-pay
votes. After Allstate was backed by a relatively low 57% in 2011, the
insurer responded with its first-ever letter from the board to its
shareholders in that year's annual report. The letter outlined steps
Allstate was taking to address shareholder concerns. Allstate's
approval rate climbed to 92.3% in last year's vote.

Allstate declined to
comment on its board's outreach efforts.

Some
investors say they are starting to expect to hear from directors,
particularly if they have concerns about issues such as pay. "It's an
absolute red flag," when directors are reluctant to talk with
shareholders, said
Stephen Brown, who runs the corporate-governance group at benefits
manager TIAA-CREF.

But contact
between boards and shareholders remains relatively rare. According to
a 2011 survey by nonprofit research group the Conference Board, Nasdaq
OMX and
NYSE Euronext, roughly 25% of 334 companies surveyed in 2011 had
adopted a set of rules for boards to follow in communicating with
shareholders. "For most companies, attendance of the annual meeting of
shareholders is the only form of investor engagement required of board
members," the report said.

Peter Browning, who runs a board advisory firm and serves on the
boards of
Nucor Corp.,
Lowe's Cos.,
Enpro Industries Inc and
Acuity Brands Inc., said none of those companies have had their
directors meet with investors. The CEO typically is a company's public
face, and directors don't want to risk muddying the CEO's message, he
said.

Indeed, most companies
communicate with their shareholders through the CEO, chief financial
officer or investor-relations staff, if only to avoid board members
inadvertently disclosing nonpublic information, he said. "You don't
want mixed messages in the marketplace."

Directors
also don't want to give the wrong impression about their role by
talking strategy with shareholders, said ISS President
Gary Retelny. "There is still some apprehension by directors who
don't want to get in the middle of what management is doing. They
don't want to be perceived as operators."

Despite such concerns,
Mr. Retelny said ISS, which met with roughly 300 companies last year,
has had directors attend some of the meetings. "It's a very small
percentage, but there's no doubt it's increasing," he said.

Prudential Financial Inc. has issued a board letter to
shareholders every year since 2010. Peggy Foran, its chief governance
officer, said outreach efforts by the company, including the letter
and meetings between directors and shareholders, helped Prudential
management increase its "yes" votes on say on pay to 95.88% last year
from 86.5% in 2011. "It's good business judgment to get the thoughts
of institutional investors," she said.

Some
companies see the value of keeping shareholders in touch with their
boards, but prefer to have management mediate the exchange.
Coca-Cola Co. uses its director of corporate governance,
Mark Preisinger, to solicit comment from shareholders and give the
board their feedback.

"Our directors are
available for direct engagement with shareowners and have done so,"
said Mr. Preisinger, in an email. "What we have found most effective
for our shareowners and most efficient for the board is a
management-driven model. A member of management works as a dedicated
contact with shareowners on behalf of the board on governance,
environmental and social issues."

A version of this
article appeared Jan. 8, 2013, on page B7 in some U.S. editions of The
Wall Street Journal, with the headline: Boards Cozy Up to Investors.

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